Beware Tax and Legal Pitfalls when Trading Farm Machinery

Farmers are making the most of buoyant second-hand
trade in machinery, with strong demand throughout Europe – but they need
to be careful of VAT and legal pitfalls.

According to farm accountant Old
Mill, selling surplus machinery
is a good way to free up cash, but it usually comes with an increased
tax bill and is not without its risks, particularly when dealing
with overseas buyers. “If you sell any equipment you will usually
have to pay Income Tax or Corporation Tax on the sale price,” explains
Andrew
Vickery, head of rural services at Old Mill. “Many people
think that they are dealing with Capital
Gains Tax instead, and
can therefore make use of their CGT allowance – but that simply
isn’t the case.”

Cheffins Machinery Sale

Sales of second hand machinery through Cheffins
auctioneers increased
by 13% in Q2 2018, to £10.07m; its highest level since 2014. However,
the volume traded only increased by 3%, reflecting the higher prices
driven by favourable exchange rates for overseas buyers, stronger
commodity prices and a lack of stock.

Around 80% of stock sold at the firm’s Cambridge machinery sales
went overseas, with buyers from countries including Ireland, Spain,
Bulgaria, Poland and Belgium. So what’s the difference between
selling within the UK and further afield?

“If you’re selling overseas to a business you do not generally
need to charge VAT,” explains Mr Vickery. “For EU sales, you must
show the purchaser’s VAT number on your sales invoice and they
pay VAT in their own country using the acquisition VAT process.
You then need to log the sale on your VAT return, fill out an EC
Sales List and send it in to HMRC. It is also vital that you retain
a copy of the relevant freight documents for both EU or non-EU
sales.”

Since laws differ in every country, it’s important to understand
the basic legal framework of the country to which you intend to
export, says Amy Kerr, senior associate at solicitor Clarke Willmott.
“Initial research and planning ahead are essential.”

Considerations include investigating who you are dealing with,
and checking they have legal capacity to sign any contract. “In
some jurisdictions, there is a duty to inform potential buyers
of any facts which would affect their decision to sign up to the
contract,” explains Ms Kerr.

The contract itself should include an accurate description of the
machinery – otherwise it may be deemed to be of satisfactory quality.
Does the price include any sales taxes, customs duties, freight and
insurance – and can these be varied later to reflect fluctuating duties
or exchange rates?

A key concern is when and how payment is to be made – and in what
currency? “Payment up front is always best, with delivery once payment
has cleared,” explains Ms Kerr. “Paypal is an option as this controls
when payment is made.”

If interest is to be charged for late payment, this should be specified.
“If you’re receiving a cash payment of €10,000 or more, you may need
to register with HMRC and carry out money laundering checks.”

Other issues include damage in transit or late delivery – can the
purchaser reject the goods? “You should also specify which courts are
to have jurisdiction in the case of a claim.”

Many of these considerations also come into play when trading within
the UK, warns Mr Vickery. “There is strong trade in second hand machinery
within the UK, as farmers join forces to buy new equipment while others
look for cheaper options. While there will always be tax considerations
when freeing up capital, it’s important to make the right commercial
decisions for your business.”